Nvidia stock (NASDAQ:NVDA) shareholders have had a good start to the 2024. The acclaimed chipmaker’s shares have risen more than 75% on a year-to-date basis off the back of the artificial intelligence wave that has broadly lifted technology equities since 2023. Since the advent of this year’s second quarter, the stock market rally appears to be tapering, and so has the A.I. wave that lifted Nvidia’s shares. Last time, I had written about Nvidia’s stock, the company had been nearing $1,000/share but has since dipped. In particular, Nvidia stock had reached around $950/share and has fallen nearly 10% to $871/share.
Last year, the company’s share returned a staggering gain of 240% last year, and despite some market turbulence currently, Nvidia’s share price could perform even better in 2024.
Below are three reasons to keep Nvidia stock in your portfolio despite market dip concerns.
Nvidia dominates A.I. and competitors
If we’re discussing AI-powering semiconductor chips, Nvidia is by far the preeminent leader in the space. Nvidia’s chip design prowess and ample R&D expense, which was $7.3 billion in 2023 (27.2% of 2023 revenue) and has floated between 1/5 and 1/4 of revenue over the past few years, has allowed Nvidia to effectively snap up 81% of the market for AI chips. The chipmaker has effectively tackled and consolidated this new market in an unprecedented manner. Moreover, the only chipmaker to begin to rival Nvidia in the near future will be Advanced Micro Devices (NASDAQ:AMD). While AMD does plan to sell billions worth of AI chips in 2024, there is a steep hill to climb in terms of capturing market share.
Nvidia’s new flagship processors dubbed “Blackwell” underscore how Nvidia can leap ahead of competitors in a relatively short time span. The chipmaker continues to live up to AI hype in this regard.
New AI partnerships could drive multiple expansion
Generative AI has created efficiencies in a number of enterprise and consumer applications; however, it has yet to make its way into the industrial sphere of the market. These spaces require heavy amounts of capital investment, and while interest rates remain elevated and will be that way for the foreseeable future, companies operating warehouses, logistics sites, or manufacturing facilities are going to look for ways to reduce their long-term costs. Digital transformation through generative AI could bring these cost efficiencies into fruition.
Hitachi (OTCMKTS:HTHIY), a Japanese industrial conglomerate, announced a partnership with Nvidia to help bring generative AI to the forefront of its businesses. The conglomerate expects to utilize Nvidia’s Omniverse technology to simulate and optimize industrial processes. Moreover, Hitachi will also be combining its own Lumada AI library with Nvidia’s AI Enterprise and Modulus platforms to help customers, operating in a range of industries, to create their own AI-centric solutions.
SAP (NYSE:SAP), which is an enterprise software solutions provider, has partnered with Nvidia to create efficiencies using generative AI.
These are just some of the companies working with Nvidia to drive digital transformation in a number of industries. Nvidia’s leadership in AI makes it the ideal partner for these forward-thinking firms, and partnerships like these could drive NVDA earnings and multiple expansion in the future.
Nvidia drives market rally, but valuation is not stretched
Nvidia’s share price continues to amaze investors at how high it can climb. The Nasdaq has risen nearly 7% on a year-to-date perspective, and much of these gains are of course tied to Nvidia, which boasts a weighty market valuation above $2 trillion. Still, despite major gains in share price, the chipmaker’s forward P/E ratio is still well below where it was 12 months ago. Last March, the stock was trading at over 60.0x forward earnings. Nowadays, Nvidia trades around 35.1x forward earnings.
This puts Nvidia’s earnings multiple below that of its key competitor, AMD, which trades at 47.4x forward earnings.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.